Automatic pension saving to begin at 18

Workplace pensions

GETTYThe move is set to streamline saving for both companies and their employees

Pension auto-enrolment is to be extended to 18-year-olds under plans set to be published by the Department for Work and Pensions today. This is now £5,876 while the higher amount is £45,000.

And whereas, at present, the first £5,876 of their earnings is excluded from their pensionable income, ministers will push through changes to ensure every pound is in future included in the calculation of contributions.

Auto-enrolment contributions are being phased up; in 2018 rising to a combined 5% and to 8% in 2019.

The DWP plans to remove this lower earnings limit so that people earning less than £5,876 would be entitled to employer contributions if they choose to opt in, and would themselves contribute to a pension from the first pound of their earnings. Contributions are now calculated based on how much you earn between £5,876 and £45,000.

"Indeed, the changes to the age threshold and the removal of the lower earnings limit would see someone who started saving at 18 years old build a pot of 15% more than someone who started saving at 22 years old", he said.

And, while proposals to lower the age for automatic enrolment in workplace pensions from 22 to 18, those plans will not be introduced until the mid-2020s.

Since the launch of auto-enrolment in 2012, the number of people in workplace pensions has grown to more than 9 million, with many of them under the age of 30.

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At present, employers must contribute 1.0% of an employee's qualifying earnings while employees pay in 0.8% of earnings, although they enjoy the benefit of tax relief on contributions.

These two reforms would mean an extra £3.8bn would be added in 2020/21.

Jon Greer, head of retirement policy for Old Mutual Wealth, said the government should consider a pension "sidecar".

When the government do announce the reforms, it will be important that they do "nudge" the self-employed into pension savings, Greer said, otherwise it is unlikely saving rates will increase.

"Reducing the age at which people will be enrolled is a welcome step and normalises pension saving from the moment people enter the workforce and should help kick start the saving habit at a younger age".

DWP Secretary David Gauke claims the Government's new savings culture will put millions on the path to a more financially secure retirement. So it's good to see the Government testing savings solutions for the self-employed.

"Most would regard the new pledge to simply encourage self-employed people to save in a pension, rather than them being auto-enrolled and having to opt out, as breaking this manifesto commitment - hardly a road the government will want to go down having already had its fingers burnt when trying to raise NI contributions for the self-employed", he explains.

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